According to Andreas, direct equity secondaries involve investments in companies in relatively young portfolios that often still have significant upside potential and are important for fund performance in the long term as well. For the fund manager, they are therefore too valuable to sell in full. Instead, the manager sells a minority stake in the company – typically 20% to 30%. This way, the fund and the investors gain liquidity, while control and a large portion of the asset’s upside potential remain with the fund manager and the fund selling the stake.

For investors, the main advantage lies in the quality of the companies, Andreas explains. Direct equity secondaries provide access to a segment of the private equity universe that is often only partially accessible through traditional primary funds. Compared to traditional secondary transactions, there is greater control over portfolio construction, and blind pool risk is significantly lower. Holding periods are typically shorter than with a continuation vehicle, which can improve the investment’s cash flow profile. Since the minority stakes are held directly, direct equity secondaries are one of the few secondary strategies in which no transaction-level fees are incurred.

Read the article in German here.